Small businesses have second chance to qualify for $25K-$150K loans

The New York Business Development Corp. is leading 13 area banks in making more than $1.8 million available to small businesses.

The idea is to give a “second look” to startups and other firms that do not qualify for traditional credit, and to encourage both banks and borrowers to take a chance.

NYBDC, an Albany-based lending consortium, actually created seven “Credit for Success” revolving loan funds throughout the state, with $7 million from 30 banks.

Some, including Buffalo-based First Niagara Bank, KeyBank N.A. of Cleveland and New York City-based HSBC Bank USA, are taking part in more than one pool.

The local fund is the largest. Each bank put in $125,000, and the NYBDC contributed $250,000, for current available funds of $1.875 million.

The loans will range in size from $25,000 to $150,000, and may be used for working capital, to refinance debt, or to purchase equipment.

They will be backed by the U.S. Small Business Administration with guarantees of at least 85 percent of the principal amount. The NYBDC will manage the fund and make lending decisions based on SBA criteria.

‘No stone unturned’

Patrick MacKrell, CEO of the NYBDC, said the program is similar to what the consortium does every day. The primary difference is that it normally makes loans in partnership with one bank, while the pool has many banks share in each deal.

That will allow banks, and the NYBDC itself, to take on riskier credits.

“One of the reasons we’re doing this is to make sure no stone is unturned in providing small businesses with credit,” he said. “We don’t want any loan that makes sense to slip through the cracks.”

In order to be considered for a Credit for Success loan, a business must first be declined by its regular bank. It also must seek counseling from the Small Business Development Center, an arm of the SBA.

John Buhrmaster, president of First National Bank of Scotia, said this could solve a few problems.

He said a lot of small businesses have been financed with pre-approved credit cards.

“It was easier for them to sign that one piece of paper than to go talk to a bank,” Buhrmaster said. “But the problem with that was, they didn’t receive the expert counseling they needed.”

Now that credit card marketers are holding back on easy credit, the lending consortium gives businesses an alternative, and it will also put counseling back into the mix.

In off the bench

The program also should make things easier for lenders.

“It is not a big cash outlay on our part, but gives us an alternative way to help small businesses,” said Christopher Dowd, president of Ballston Spa National Bank. “It diversifies the risk.”

If, for example, the pool makes a $150,000 loan with an 85 percent SBA guarantee, the most any bank will be on the hook for is $1,700.

MacKrell said it is often the regulators that do not want banks making loans to startups or other businesses deemed risky. Spreading the risk may solve that problem as well.

“There’s a place for those loans,” Buhrmaster said. “These projects are important. Just because they don’t qualify for traditional financing doesn’t mean they aren’t important.”

Increasing the bank’s appetite for risk is only one goal of Credit For Success. MacKrell said the other is to “make sure businesses know that banks are willing to lend.”

“People read about a credit crisis and think ‘I won’t get a loan. I won’t even bother trying,’ ” he said. “We’re hoping to coax them off the bench a little bit.”